Iraq is a resource and oil-rich country in the Middle East. Iraq has the immense potential to emerge as a regional and global economic player with significant political and strategic regional influence. The country can be considered the next best destination for investment and business.
With growing political stability in the country, Iraq is offering a lucrative business environment. There is growing foreign investment in the country and global investors are looking for reliable, experienced, and well-connected partners in the country to build the business.
Iraq borders Turkey in the north, Iran in the east, Kuwait and Saudi Arabia in the south, and Jordan and Syria in the west.
Geographically, the country mostly consists of deserts in the west and south and highlands in the north. Al-Jazeerah, an upland region between the Tigris and Euphrates rivers is situated in the north and the Tigris-Euphrates alluvial plains are situated in central and southeastern Iraq.
Iraq formally gained independence in 1932 but remained under British imperial influence for several decades as the country went through an unstable and volatile monarchal rule which was eventually overthrown in 1958.
According to The Organization of the Petroleum Exporting Countries (OPEC) Iraq currently holds 145,019,000,000 barrels of crude oil, it ranks 5th in the world in terms of crude oil reserves.
After the successful development of Iraq in the 1970s, just a decade later, Saddam Hussein came into power. During Sadam’s regime, the development trajectory remained static and somewhat went down which also led to two wars and destruction.
The Iran-Iraq war that lasted eight years begin in September 1980 and later in August, 1990s Iraq invaded Kuwait leading to another turmoil in the Persian Gulf. Against this backdrop, the US-led coalition of 35 countries invaded Iraq in 2003 ousting Saddam Husain. The US occupation of Iraq lasted for eight years, with troops formally withdrawing in 2011.
Now with the incumbent government in place and there is peaceful political and democratic functioning of the governance in the country, there is a greater likelihood for
Iraq’s Economy
Iraq’s economy is dominated by the oil sector. Oil exchanges have provided about 99% of the country’s foreign exchange earnings in recent times, earlier it was primarily an agricultural society. After the rapid development in the 1970s, the country became the fifth strongest economy in the middle east.
Despite massive losses during the two wars Iraq has persevered as an economy. After sanctions were levied after the war ended the GDP contracted every year until the country took part in the United Nation’s oil-for-food program in 1997 after which the GDP saw a sizeable increase. When the Iraq War started in 2003 International donors pledged billions of dollars for the country’s reconstruction projects.
The Paris club, in 2004 decided to cancel 80% of Iraq’s 40 billion loans, which further helped the country along the road to economic recovery. Under the CPA there was mass unemployment and production of oil and petroleum products declined considerably.
Unemployment remains one of the biggest challenges the country has had to face in the last couple of years. Iraq has mostly remained an oil-exporting country over the last few years. In 2020 the value of its oil exports amounted to 44,287,000,000 with the overall value of exports being 46,811,000,000. Oil represents a large part of the country’s revenue. the output of petroleum products was 587.2 per 1000 b/d.
Ease of Doing Business
Iraq is currently ranked 171 among 190 countries on the ease of doing business scale. The World Bank classifies ease of business as the ability for an entrepreneur or an organization to do business with ease within a country this includes a number of parameters; the ability to acquire electricity, get credit and loans, the ease at which capital is available, the ability of banks to lend, the tax regime of the country, dealing with construction permits and trading across borders/between countries.
Although most international investors looking to do business in the country are still wary given the country’s past, the potential gains to be made can’t be overlooked either. With a market of over 36 million people, it is clear that investing can go a long way.
The Legal 500, a research institution based in the UK conducted a survey with over 100 legal counsel and foreign investors currently active in the country. A quarter (26%) rated their investment as positive and only 9% rated their investment as extremely poor, 40% of investors chose to invest because of a lack of competition in the market.
Lots of infrastructures were lost due to the conflict with ISIS, mostly in Mosul and some western and northern parts of Iraq. The security situation varies from region to region. Iraqi Kurdistan Region (IKR) is relatively the safest place for businesses and investors.
Investors continue to face the problems of a weak banking system however now it is improving with each passing day. Public sector banks mostly work to settle the payroll of the public sector while private banks have mostly only functioned as currency exchange institutions. In addition to this, earlier there was a lack of credit monitoring which hinders productive investment and a lack of connections to international banks and financial institutions further hamper the ability of banks to lend.
Efforts by the Government of Iraq
Despite all these hurdles and challenges, the government of Iraq has been working tirelessly to foster a more healthy and robust business environment, aimed at attracting foreign investment and capital into the economy.
The government has introduced a new single-window system that condenses what was once an otherwise overly complicated and tough system that involved multiple visits and meetings into a process that can be completed entirely online with only a few clicks within a few short minutes. The new website introduced by the Iraqi government is easy and intuitive for anyone who wants to apply to start a business in the country. Online registration also greatly encourages female entrepreneurship
Aspiring entrepreneurs who want to establish their business in Iraq need only a few steps to do so. The new system allows these individuals to register their business names and get a tax and social security number relatively easily. Opening a business in Iraq has never been easier according to the United Nations Conference on Trade and Development (UNCTAD)
Ramzi Naaman, a special representative for the World Bank, Iraq said that he welcomes what the Iraqi government has done so far to ease the penetration of new businesses in the market
“We welcome the Iraqi government’s direction towards economic reform and appreciate its efforts in automating services” -Ramzi Naaman
The Iraqi Deputy Minister of Trade, Mohammad Honoun said that improving the business environment in the country is their top priority he also added that the automation of government sectors is key to achieving this target.
The country has shown its desire and commitment to attract foreign investors. Iraq partnered with Kuwait and the world bank in 2018 to host the reconstruction of Iraq conference 2018, but a lack of communication has stalled the commitments to reform policies to allow for more investment.
Iraq’s gas industry which has recently seen an increase in its development also stands to add to the country’s investment potential. Foreign investment is required to bring down the country’s high unemployment rate.
Additionally, the government has made significant progress in trying to rectify most of these problems. Between 2004 and 2008 30 laws were passed, pertaining to business and finance that cover a wide range of sectors including financial institutions, foreign investment, etc.
National Law 13 (2006) was a milestone for investors both international and domestic. The amended law allowed foreign ownership of housing projects. This law also exempts foreign firms from taxes for up to ten years.
Additionally, it encouraged the Iraqi and foreign private sectors to invest in Iraq by providing the required facilities for establishing investment projects and enhancing its competitive capacities in the local and foreign markets. Furthermore, it also sought to develop Human Capital as per the requirements of the market.
Much of Iraq’s infrastructure is still in shambles after decades of war and then the rise to power of the Islamic State. The country’s reconstruction projects will equate to $88 billion according to the World Bank.
Foreign Direct Investment is the only way the country can rebuild given the lack of local investment. Iraq’s National Investment Commission (NIC) stated that all of the country’s infrastructure has been subject to devastation.
In 2020 the NIC released a list of 157 small and medium-sized projects seeking foreign investment. Most of these projects are related to refining, chemicals, petrochemicals, and, fertilizers. The NIC also lists the reconstruction of western Iraq as a key part of its initiatives. This includes the reconstruction of Mosul International Airport and the reconstruction of highways and railways across the country.
The NIC also highlighted opportunities in Iraq’s four special economic zones (SEZs), these SEZs focus on areas such as manufacturing, technologies, and agriculture and are in Hutten, Nineveh, Deawniya, Baghdad.
What Opportunities exist for International Investors?
Oil
Most of the country’s sectors have failed to attract foreign investment in recent years except for the oil industry which still remains Iraq’s most attractive sector. In 2019 Russia’s state-owned oil company Gazprom Neft expanded its operations into Iraq and in 2020 increased its production capacity in the country.
Construction
With Iraq’s increasing population housing is becoming a major problem, with most of the country still damaged, access to housing remains very low. The Iraqi government announced plans to build 12 new residential cities in Iraq to mitigate this problem. This project has already attracted foreign investment from South Korea. The Hanwha Engineering and Construction company is building a city near Baghdad. This area still remains an attractive proposition for foreign construction companies looking to invest.
John Menzies, a London-based airport service recently expanded its operations into Iraq, particularly the Baghdad airport while a French company won a contract to rebuild the Mosul airport. The airport reconstruction projects remain very competitive and with Europe-based firms investing in this sector, it spells good news for potential investors.
Iraq’s electricity sector 2020 signed a contract with Siemens and GE to upgrade Iraq’s stations and transmission grid. The country is also planning to start work on an elevated metro system for Baghdad in the second quarter of 2022. Alstom, a transport company based in France has been awarded the task to build this project.
Agri-food
According to the investment monitor employment in Iraq’s Agriculture sector has increased substantially between 2008 and 2020. The agri-food sector can play a pivotal role in turning the economy around and putting it back on a sustainable growth track. Currently, agriculture accounts for 7% of the GDP and employs one-fifth of the country’s total workforce.
“Agri-food is a low-hanging fruit: it can attract much-needed private sector investment at a time of government cash crunch and create jobs quickly, as the country struggles with youth dissatisfaction, a high unemployment rate, almost daily protests, and the return of insurgency.” -World Bank
If investments in these sectors are made Iraq could become a major world player in wheat, barley, and dates, according to the World Bank, Iraq’s agri-food sector can create more than 23,000 small enterprises and over 120,000 new jobs by 2030.
Agri-food is an excellent proposition for many foreign investors the returns to be made will be substantial.
Telecommunications
An industry that has gained traction in recent years is the telecommunications sector. 71% of Iraq’s population is under 30 and as such mobile phone usage has increased manifold over the years. In 2020 the total number of mobile users stood at nearly 40 million, with nearly 30 million internet users. Many of the country’s mobile phone operators have also witnessed tremendous growth over the years and are close to being listed on the Iraqi stock exchange. Telecommunications will be a major source of investment in the coming years.
Healthcare
The healthcare system in Iraq is severely underdeveloped. According to the world bank in 2021, only 4.477% of the total GDP was spent on healthcare. On average the country has 1.1 hospital beds and 0.8 doctors per 1,000 people. In 2018 over 85% of essential medicines were in short supply in the country.
Healthcare is a sector that needs foreign investment in addition to private sector investment, the country has already signed with international companies. The World Health Organization has worked with Iraq to ensure better patient outcomes and to ensure universal access to healthcare.
Persisting Risks and long-term rewards
According to an estimate from the US State Department that there exist some hurdles in doing business in the country with 57 US companies failing to make any significant progress since their inception of operations in Iraq. However, US State Department also recognized a few areas where international companies could invest in Iraq.
“Companies have opportunities to invest in the security, energy, environment, construction, healthcare, tourism, agriculture, and infrastructure sectors. Iraq imports large volumes of agricultural commodities, machinery, consumer goods and defense articles.” -US Department of State.
Although risks and progress remain low, investors will be able to reap the rewards in the near future if they start investing now. With a population of over 36 million and large reserves of oil and major gaps in investment in key construction and infrastructure areas, like healthcare and telecommunications the potential returns to be made can not be overlooked. Many foreign investors are now investing in the country which is a good sign for other potential investors
Why is Iraq a good place to invest?
Strategic Location
Iraq holds a strategically important position in the Arabian Gulf and Middle East region, it can act as a gateway to its respective region. The country possesses many important seaports and airports which makes trading very cost-effective and makes the country an efficient trading and distribution location.
Untapped Market
Iraq also currently severely lacks investment. There is an enormous untapped market across all sectors of the Iraqi economy. The government itself has identified many sectors for investment.
These include the manufacturing industry, housing, tourism, agriculture, construction, telecommunications, and, healthcare. The National investment commission has streamlined the investing process for potential investors which makes accessing any of these sectors very easy and hassle-free.
Population
Iraq also boasts a sizeable population of over 36 million people, this presents investors a unique opportunity to produce and sell goods in this market to not only meet the demands of the people and also to provide import substitution. Iraq’s competitive cost base makes it an excellent location from which to export to the region and the world.
Qualified and young workforce
The workforce in Iraq is well educated. Over 21% are graduates or postgraduates while 14% have higher-level education or possess a higher technical skill worth a lot to MNCs looking to invest in the country. Typically, Iraq is known to have expertise in areas such as engineering, medicine, and agriculture, the country has a sizeable number of individuals with skills in administration and organizational skills.
Additionally, the population of Iraq has a very high percentage of young people. Over 71% of the population is under 30 years old and 83% are under 40, the country also has a very high unemployment rate.
The current employment rate stands at just 11% these factors make the country a very attractive investment for organizations looking for the labor and skilled personnel, there is potential for the country to provide international investors exactly what they want.
Government incentives
In recent years the Iraqi government has taken several steps to increase investment opportunities, one of the ways the government has done this is by offering investors a 10-year exemption from all taxes and corporate fees.
This time frame is extended to 15 years if the project is a joint venture with an Iraqi company. After this period is over the government also offers a substantially low tax rate of only 15% on corporate income, which is one of the lowest in the region and globally.
The country also allows the investing firm to employ foreign workers when needed. Iraq also promises that investments will not be nationalized or confiscated. The low tax rate and initial tax-free periods allow investors to quickly turn in a profit.
Hydrocarbon reserves
Iraq holds some of the world’s largest reserves of hydrocarbons. It is estimated that the country holds some 145 billion barrels. Iraq’s undiscovered oil reserve is estimated to be the world’s second-largest, many experts believe the untapped oil stands at 300 billion barrels in addition to gas reserves amounting to 98 trillion cubic meters.
What still needs to be done
There is still significant work that needs to take place despite the government’s ongoing actions. Because of the decade-long wars, the country severely lacks the technology and skilled labor along with proper infrastructure, these attributes are necessary for any business to prosper in a given country.
The government needs to work towards the acquisition of modern technology and in-country investments in infrastructure to facilitate not only foreign investment but also local investment.
Iraq is heavily dependent on oil for its economy, there are opportunities for the government to invest in other sectors to make the economy more robust, Iraq is an export-heavy country if significant investments were made to its manufacturing industry, more specifically the retail sector it would greatly boost the economy.
The country is struggling to reach the highest ranks for the World Bank’s ease of doing business scale. If significant progress is made to further remove the barriers and to make business and investment easier, the country could flourish given its young population and vast reserves of gas and oil.
*The writer is a Research Fellow at the Institute of Peace and Diplomatic Studies and The Diplomatic Insight
*The views expressed in this article are the writer’s own and do not necessarily represent those of the institutions.
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